Microchip Technology Incorporated (MCHP, Financial) has announced a series of restructuring actions aimed at reducing costs and resizing its manufacturing operations. This strategic move follows the company's previous announcement on December 2, 2024, regarding the closure of its Tempe, Arizona wafer fabrication facility, known as "Fab 2". The company now anticipates shutting down Fab 2's manufacturing operations by May 2025, which is ahead of the initially expected timeline. The facility and its equipment are currently available for sale.
In addition to the Fab 2 closure, Microchip Technology is implementing headcount reductions at its Fab 4 facility in Gresham, Oregon, Fab 5 facility in Colorado Springs, Colorado, and its backend manufacturing facility in the Philippines. The company is also reducing staff in various business units and support groups. These actions will result in a total reduction of approximately 2,000 employees. The estimated costs associated with these restructuring efforts range between $30 million and $40 million, covering cash severance, other severance benefits, and related restructuring expenses.
The company expects to communicate these changes to employees during the March 2025 quarter and aims to fully implement them by the end of the June 2025 quarter. Once fully executed, these measures are projected to reduce ongoing operating expenses by approximately $90 million to $100 million annually. Additionally, the actions at Fab 4 and Fab 5 are expected to further decrease employment-related costs by an additional $25 million.
Microchip Technology also anticipates incurring charges of approximately $45 million due to the cancellation or modification of long-term supply agreements with certain wafer foundries. These agreements are being adjusted as the company does not foresee purchasing the specified number of wafers within the agreed timeframes.
While the company has provided estimates for the restructuring costs, these figures are subject to refinement as more information becomes available. There is a possibility of incurring additional expenses not currently anticipated. The company has not yet determined if any accelerated depreciation or impairment charges will be recorded.
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